In another welcome decision for employers, the Ontario Court of Appeal in Battiston v. Microsoft Canada Inc., 2021 ONCA 727 ("Battiston") overturned a Superior Court decision which found that an employer failed to provide adequate notice of a termination provision in a stock award agreement, such that the employee was entitled to receive continued vesting of his stock option awards throughout his 24 month reasonable notice period.
The employee in Battiston was employed by Microsoft for almost 23 years when he was terminated without cause, shortly after fiscal year end. In addition to his base salary and benefits, the employee was entitled to stock awards pursuant to the terms of governing stock award agreements which he received over the course of 16 years. These agreements provided that any unvested stock awards would not vest in the event of termination of employment for any reason.
Each year, Microsoft provided notice of the stock awards by email. These emails typically read as follows:
Congratulations on your recent stock award! To accept this stock award, please go to My Rewards and complete the online acceptance process. A record will be saved indicating that you have read, understood and accepted the stock award agreement and the accompanying Plan documents. Please note that failure to read and accept the stock award and the Plan documents may prevent you from receiving shares from this stock award in the future.
Each year, on receipt of the above notice of his stock award, the employee clicked a box confirming that he had read, understood, and accepted the agreement.
Relying on the termination provisions in the award agreements, and the above notification and acceptance, Microsoft took the position that following his termination the employee was no longer entitled to the vesting of any granted but unvested stock awards. Conversely, the employee testified at trial that he did not read the agreements due to their length, did not know about the termination provisions which were not brought to his attention, and therefore thought he was entitled to unvested stock awards in the event he was terminated from employment. He further argued that the termination provisions in the stock award agreements were harsh, onerous, and unenforceable as Microsoft did not bring them to his attention.
Superior Court Decision
Despite finding that the contractual termination provisions in the stock award agreements unambiguously excluded the employee's rights to unvested stock awards during his reasonable notice period, the trial judge found the employee to be entitled to damages in lieu of his stock awards that would have vested during such period. In reaching this conclusion, the trial judge agreed with the employee that the contractual limitation of entitlements upon termination was unenforceable because the employer failed to sufficiently draw these "harsh" and "oppressive" provisions to his attention. The trial judge specifically stated that Microsoft's email communications that accompanied the notice of the stock awards did not "amount to reasonable measures to draw the termination provisions to [the employee's] attention."
Court of Appeal Decision
In a surprisingly brief decision, the Court of Appeal found that the trial judge erred in finding that the employee did not receive sufficient notice of the termination provision. In making this finding the Court of Appeal noted the following facts:
- For 16 years the employee expressly agreed to the terms of the agreement.
- The employee made a conscious decision not to read the agreement despite indicating that he did read it by clicking the box confirming such.
- By misrepresenting his assent to the employer, the employee put himself in a better position than an employee who did not misrepresent, thereby taking advantage of his own wrong.
In light of the foregoing, the Court of Appeal overturned the trial judge's decision as it related to the vesting of stock option awards during the reasonable notice period.
Impact & Action
It is important to note, in the context of incentive compensation plans, that Battiston does not change that (i) termination provisions must be clear and unambiguous in order to be enforceable (for further discussion see here and here), and (ii) an employer must provide notice of such terms to its employees. Helpfully, employers now have some guidance as to what form of notice will be sufficient for these purposes. This guidance is particularly useful for employers using email and/or web-based platforms for administering incentive compensation plans, as has become increasingly common.
Given the continuing notice requirement, we continue to encourage employers to put in place reasonable measures to draw termination (and other onerous) provisions to the attention of employees when offering incentive compensation and circulating grant agreements. Employers may wish to consider having employees initial (or electronically click to accept) relevant sections of the plan/agreement, providing FAQs about the relevant plans, and offering information sessions.
Should you have any questions regarding the impact of the Battiston decision on your business or the implementation of incentive compensation plans, please do not hesitate to contact a member of the Employment & Labour Group.
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